Karl Kautsky

The Capitalist Class

Chapter VI
The Lowering of the Rate of Profit

Hand in hand with this development, the quantity of capital which the capitalist class applies productively shows a tendency to increase more rapidly than the exploitation of the working class, that is to say, more rapidly than the mass of surplus which the latter creates. To illustrate: compare a spinner of sixty or seventy years ago, who was then exploited by a capitalist with a machine weaver of to-day. How prodigious is the capital requisite to enable the latter to work! On the other hand, the capital which the capitalist invested in hand weaving was trifling in comparison. Sixty or seventy years ago, the capitalist paid the weaver his wages and gave him the cotton or flax which he needed. In point of wages, there has not been much change; but a machine-weaver consumes to-day in production a hundred times more raw material than the former handweaver; over and above that, how prodigious to-day are the buildings, power-engines, steam-looms, etc., necessary to carry on the industry!

Small Capital Required to Begin Business Sixty Years Ago

There is still another thing to be considered. The only outlays of the capitalist who sixty or seventy years ago employed a spinner, were for wages and raw material; there was not any fixed capital: the spinning-wheel was too trifling to consider; he got his capital back quickly, say, every three months. As a result of this he needed to start with only one-quarter of the capital which he used during the whole year. To-day, the capital invested in a corresponding mill, in machinery and building, is prodigious. Even though the time within which the capitalist could now get back the sums he pays out in wages and for raw material were the same as sixty or seventy years ago, the time it now takes him to get hack the rest of the capital, which sixty or seventy years go he hardly needed, has become a very long one.

A series of circumstances work in the opposite direction. Among these, the most important are the more recently developed system of credit, and the decline in the price of the products, the latter of which is the inevitable result of the increased productivity of labor. But neither of these causes is able to counteract the effect of the others. In all branches of production, in some more slowly, in others more rapidly, the quantity of capital necessary for production grows perceptibly from year to year.

Let it be assumed that the capital necessary for a certain industry sixty or seventy years ago was $100, and that to-day the amount necessary is $1,000, and furthermore, that the amount exploited from labor is now five times as large as then, namely, that while the surplus which labor formerly produced was $50, to-day it is $250. In this case the quantity of the surplus has increased absolutely; nevertheless, in proportion to the quantity of capital invested, the surplus would be fifty per cent. of the total capital invested; to-day it would amount to twenty-five per cent. only.

This instance is simply an illustration intended to point out a tendency.

Rapid Increase of Capital and Surplus

The total amount of surplus yearly produced in this country, as in all other capitalist countries, increases rapidly, but still more rapidly grows the total amount of the capital invested by the capitalist class in their establishments. If now, it be considered that, through taxation, the government carries off yearly an ever larger portion of the capitalists’ surplus, the phenomenon may be explained that the quantity of surplus that will accrue to a certain amount of capital tends steadily to diminish, notwithstanding the amount of exploitation of labor tends steadily to increase.

Accordingly, profit, that is to say, that portion of the surplus produced by labor which a capitalist retains, shows the tendency to decline in proportion to the quantity of capital that he invests. Or, to put it otherwise, in the course of the development of the capitalist system of production, the profit which a given quantity of capital yields tends to go down. This, of course, holds good only after long intervals of time. An evidence of this downward tendency of profit is the steady decline of interest.

It happens, therefore, that, while the exploitation of the workingman has a tendency to rise, the rate of capitalist profit has a tendency to sink. This fact is one of the most remarkable contradictions of the capitalist system of production – a system that bristles with contradictions.

There are some who have concluded from this sinking of profit; that the capitalist system of exploitation will put an end to itself; that capital will eventually yield so little profit that the capitalists will starve and be forced to look for work. This conclusion would be correct if the profits sank at the same time that the quantity of invested capital remained the same. This, however, is by no means the case. The total quantity of capital in all capitalist nations grows at a more rapid pace than the rate of profit declines. The increase of capital is a prerequisite to the sinking of profit; the rate of interest drops from 5 to 4, and from 4 to 3, the income is not reduced of that capitalist whose capital in the meantime grew from one million to four millions.

Decline of Rate of Profit and Interest Does Not Mean Reduction of Capitalist Income

The decline of the rate of profit, and likewise of interest, in no way implies a reduction of the income of the capitalist class. The mass of surplus that flows into its hands grows ever larger. The decline diminishes solely the incomes of those capitalists who are not able to increase their capital at the rate their competitors increase theirs. In the course of the industrial development, the point is raised ever higher where capital can support its owner with the “dignity of his class.” The quantity of capital requisite to free its owner from labor, and to enable him to live on the labor of others, becomes ever larger. The sum that fifty years ago sufficed to start an industry is to-day utterly inadequate for the undertaking. The sum which fifty years ago was a considerable fortune is to-day an insignificant pittance.

The decline of profit and interest does not bring on the downfall, but the narrowing of the capitalist class. Every year small capitalists are expelled from its midst, and consigned to the same death struggle in which the small dealer, the small producer, the small farmer, and the small concerns generally are engaged – a death struggle that may be more or less protracted, but which can end only with their own downfall into the proletariat or, at the latest, the downfall of their children into that class. As a rule, with this class, their efforts to escape their fate only hasten their ruin.

One often wonders at the large number of simpletons whom any knave can allure to intrust him with their money upon the promise of steep interest; these people are, as a rule, not the fools they seem. As the Panama Canal Scandal and so many other similar instances strongly show, fraudulent undertakings are the last straws at which sinking capitalists grasp, in the desperate hope of making their small capital remunerative. It is not so much greed, or the love for fraud, as the fear of poverty that blinds them.